Yessin Schiegg

Stablecoins

The price volatility of cryptocurrencies is an obstacle for their adoption as a mean of payment and for store of value. Of course, holders of crypto embrace price increases. However, the risk aversion is stronger with most people than their risk appetite. As a result, many people avoid making a first step into crypto. Therefore, Stablecoins are essential to accelerate mass adoption of crypto. Stablecoins are cryptocurrencies which promise to be stable versus certain fiat currencies (USD, EUR, CHF, GBP, …), a commodity, another real asset, or any basket thereof.

I see the evolution of stablecoins as follows:

Not perfectly backed centrally managed stablecoins: The coins are mainly backed by the promise of a single party or a consortium of parties issuing the stablecoin that it would be exchanged vs. the reference value if necessary. In my opinion, about all current implementations of centrally issued stablecoins fall into this category.

Fully backed centrally managed stablecoins: The coins are fully backed by the reference value. That means, there is as much of the reference asset in backing respectively storage as tokens representing that value. Moreover, the backing is of high quality and not a mere derivative. The quality and amount of backing are continuously audited and certified by a prime auditor of global reputation. An additional insurance layer provides appropriate comfort.

Central bank issued stablecoins: As the central bank which has the authority to issue a certain fiat currency also issues the cryptographic version of it, equivalence is achieved de facto. E.g. if the Swiss National Bank issues the Swiss Franc Coin, its holder should be at least as comfortable to hold it as if he’d be holding physical Swiss Franc bills.

A widely adopted extensively decentralized cryptocurrency becomes naturally stable. Specifically, while a cryptocurrency is broadly adopted by the masses, people will mentally start using it as a reference. Moreover, due to the increasing number of transactions and economic activity being transacted through that cryptocurrency it becomes inert against price shocks. There could be a flippening from fiat to crypto.

A functioning decentralized cryptocurrency would be preferable, especially if the job to provide price stability, which is typically taken care of by a central bank, can be automated. The only decentralized solution for a stablecoin which I see currently working, the Maker DAO and its DAI, seem to be built on the assumption that there are sufficient speculators seeking leverage and thus create DAI. It is not certain that Maker DAO will scale by its current design. But it’s an interesting experiment and could evolve!

In my opinion, Status should refrain from explicitly endorsing projects sponsored by central parties. Status should remain neutral and instead enable all ERC-20 stablecoins simultaneously (which technically is already the case) and not endorse any single stablecoin implementation. It should then be up to the market and the community to choose which stablecoin is best, by adopting it.